State Farm gets OK to raise rates next month

A judge ruled Tuesday State Farm is allowed to raise insurance rates next month.

The insurance company is asking homeowners pay an average 17% more. It will be allowed to impose a 15% hike on condominium owners and renters as well as a 38% increase on all rental properties.

In making the ruling, Judge Karl Fredric J. Seligman labeled the emergency interim rate increase request as "highly unusual."

State Farm asked on Feb. 3 for a nearly 22% emergency rate increase on home policies going into a hearing last month with the state's insurance commissioner and Consumer Watchdog.

According to the consumer group, the total $749 million increase breaks down to an average $468 per year for homeowners; $57 for renters and condo owners; and $451 for dwelling owners.

The insurance company said it was in financial distress due to large-scale claims brought forth by the Los Angeles wildfires amounting to an estimated $7 billion.

The insurer managing a fifth of California's policies scaled down the request as a concession during negotiations.

At the time of the emergency rate increase request, the company had applications pending with the California Department of Insurance for rate hikes amounting to over 30%. The applications were filed last June and July.

Over a year ago, State Farm opted to not renew 72,000 policies in the state. The non-renewals became eclipsed by a flurry of insurers seeking significant rate increases.

The interim emergency rate hike, the first for State Farm in California, would go into effect June 1.

As part of the order, State Farm has agreed to secure $400 million from its parent company, State Farm Mutual. It has also pledged to refrain from issuing any new, large-scale nonrenewals.

"We thank the administrative law judge for his careful consideration of this important matter. We look forward to the commissioner's final decision," State Farm spokesman Sevag Sarkissian said.

State Farm Proposed-Decision-Approving-Stipulation.pdf

A hearing is set for Oct. 20 to review evidence that State Farm must present to permanently justify the rate increase. If denied at that time, the insurance company will be expected to refund policyholders with interest.

"This is the best part of this decision," said Carmen Balber, executive director for Los Angeles-based Consumer Watchdog.

"Today's decision that would make consumers pay now, but allow State Farm to wait months before having to show its math, is a great disappointment for consumers," Balber stated. "We urge the commissioner to reject the proposed decision, so State Farm policyholders, many of whom are struggling to get their claims paid by the company after the Los Angeles fires, aren't overcharged."

California Insurance Commissioner Ricardo Lara said he aims to protect both State customers and the integrity of the insurance market.

"Let me be clear, we are in a statewide insurance crisis affecting millions of Californians," he said. "State Farm must now justify its financial condition and detail its recovery plan in a full rate hearing before a neutral judge and my department's experts. I am focused on ensuring that State Farm pays its claims to wildfire survivors fully and fairly — and nothing is off the table."